Establish a Business Plan for the New Year
Posted on: 2/3/2022
This is dialog from a Peer Talk episode between Dan Crowley, President of Peer Executive Groups and Robert Sloan, Owner of CE Rentals.
Dan Crowley: Welcome to peer talk. My name is Dan Crowley. I am your host for this hour, and I have invited Robert Sloan from CE rents. CE rentals also known as Contractors Equipment Rentals, located in Elmhurst, Illinois. Welcome to the program, Robert. We’re glad you’re here. Today we’re going to be really focusing on what we’ve been through, where we’re going, and how you as a business owner are able to kind of use the resources around you to establish your plan for the new year. Robert has been part of Peer Groups for quite some time. I would say pre the 2008 recession. We were able to traverse that recession and then move forward through the run-up that has happened with the economy and the construction industry from back in the 2010 era to 2020 and beyond. Robert, I have a quick question for you. What was it like during that run-up and when you got to the beginning of the crisis, year 2020? What was your business looking like at that point?
Robert Sloan: Hey Dan, thanks for having me, glad to be part of it. We started right about then. Starting back in 2008, when the economy was starting to really slow down, we were still fairly strong. Then 2009 really taught us the lesson. It was really about survival, trying to figure out what was going to happen. It looked like the next three to four years were going to be terrible. It kinda made us reevaluate things. Reevaluate a balance sheet, how we ran the business, and then things started to slowly get better. They moved along and business got better and we started to grow, then 2019 and 2020 were phenomenal. The construction market was really strong. It took off and the amount of growth we had, as far as our fleet and our revenue was quite substantial. From the low of about 2009, and not really sure what was happening up until that point, but we’re in the Western suburbs, probably about 15 to 20 miles west of the downtown loop area. We service their entire Chicago market
DC: Where is your business located? In the Metro Chicago area? I know one of the unique selling propositions about your businesses, you are on a small piece of property, so you maybe have less skews. You have tighter categories. Is that the case in asset code categories?
RS: That was part of the re-evaluation of business back in ‘09 to really get away from the items that you could get at the hardware store or you could get at the Home Depot rental. They were really commoditized and it was very hard to compete and you couldn’t make any return on any of that stuff. So we pared down our skews and went after what we call compact equipment. The Bobcat’s, the mini excavators, a lot of compaction air compressors, it is a pretty tight skew on what we do.
DC: You hit twenty businesses, thriving, planning, and big plans going forward. Obviously we kept one eye on the fact that we couldn’t continue a run forever. One of the things, the reason why I wanted you on the program here was I know that you look at things that are available to you from a forecasting standpoint. Where were you when you heard about the shutdown and were you able to connect the dots between the Corona virus and the potential for shutdown? Take us through what that looked like and whether your firm was affected by it or was it more of a glancing blow?
RS: Going back to the beginning of February, I went to the American rental association equipment show with the intention that we were going to buy it and then add some fleet. Business was really good. We needed to make sure we were positioned for 2020. When I got back, it started to seem like the end of February. I remember we had a team meeting and the employees were really nervous. Nobody knew what was going, what was coming, or what they’re talking about. No one was really sure. Then as we got into March, it seemed like the pressure was building on everybody and people were asking questions and looking. We had a team meeting. We discussed that we were going to keep everybody together as a family here and get through this as a company and not necessarily worry about the profits or the revenue side, but to utilize this opportunity to do stuff in house and see what we could do.
RS: The governor then came down with his “stay at home” order on March 20th. Originally it was for four weeks. So I brought everybody together and this was before the PPP started to come out and they had an idea what was going on. As a business owner, you really didn’t know what to forecast and how long. I started looking at different models and wondering if business fell off to zero, how long could you last? If the business is 50%, how long could you last? What we did was originally, we told everybody they’re going to go back to no overtime at 40 hours. We split the guys into two groups during the shutdown, the governor deemed us as an essential business and said that we had a social responsibility to stay open.
RS: We felt like we had to stay open. The employees were all looking around at each other and no one really knew if they should come home or go to work or not. We put some protocols in place. We split into two groups and we work every other day. I worked every other day in the office at least just in case someone got sick. We always had the other group that could step up and maybe go full time. At that point, I don’t think any of us really realized that nine or ten months later, we’d be talking about this still. I think we really thought that this was going to be a four, five, six week thing, and we were going to rent back up and be fine by the summer. You just didn’t have a clue at that point, it’s something completely brand new.
DC: Obviously, then the PPP and the EIDL money came out, did you feel some relief with that? Did you have any things that came out of that which were helpful? So it was something where you had the ability to go deeper with that debt option. You chose not to take it. What does your business look like compared to last year?
RS: The PPP was a phenomenal program. The way they had set it up and the method of distribution of the money, as well as making sure that there was no fraud and stuff like that. I thought it was actually one of the first government programs that actually rewarded people that did things the right way. What that did was it gave me, as a business owner, the ability to then say, “okay, we’ve got the money to make sure that we can pay our employees, keep them employed, and working and keep their families sustained”. Then try to figure out how do we react to what is going on and what are the opportunities going to be? Because at that point, you really didn’t know what was going to happen. You didn’t know what the opportunities would look like. There were a lot of companies that did it. It just didn’t fit right for what we needed.
RS: January and February seem to be fairly normal, we’re a seasonal business in Chicago. But the revenue numbers were decent compared to a normal January and February. We were doing well, but then it fell off the table in March and April. As soon as the shutdown hit, it seemed like a lot of projects that were scheduled to start in May or June, especially the school projects when they sent all the kids home, immediately started and the demand was incredible. All of a sudden while we were doing our split crews work in half the time, some of the employees in the back were getting restless and looking at me saying, “you got to bring more people back”. It’s good that we have social distance and we only have to work half the time, but there’s just almost too much work for us to do.
RS: We went back and added Saturdays, which was a six day to allow us to get some more of the work done. Then we brought back our drivers and didn’t allow them to come in with the building to try and alleviate that. So they basically sat outside. We brought in the equipment, they went to the job sites, and came back. Then at one point we just said, “that’s it, we’ve got to bring everybody back”. So we brought everybody back and we tried to limit the overtime if we could, but I told them that it was going to be on an individual basis. If we’re busy and we’re working and you guys want the overtime, you can get it. So we really didn’t monitor very closely. They were stronger at times than I had ever seen before within the 31 years of rental business. At times it was like a fire hose for us.
RS: Extremely blessed because talking to other rental companies around the country, certain pockets were seeing what I was seeing, but not every pocket. It was really busy and a tremendous amount of new customers, which was really I think for the long term. Adding those people is a phenomenon that is really gonna help us. I kind of feel like a lot of those companies, the larger companies, or the nationals had gone into such a steep shutdown mode. It had allowed the small independents like me to be able to step in and grab some of that market share or grab some of those customers that we had not done business with in the past.
DC: We did discover upon review of data from both United and Sunbelt that they had made some policy decisions that essentially put their workers a little bit behind independence.The independents were able to move quickly and adjust. There were some policies that were coming out that were not store by store. It gave me independence and the opportunity to do well. Talking about third quarter activity we see that United Rentals significantly lags the independent operator on a rate of change. We know that because we calculate the rate of change inside of the peer groups, but stepping back to 2020. This rush of work, couple of questions “what’s your management software by the way, point of rentals”. You are probably looking at hourly utilization of your assets, the duration of the contracts, and the size of the contracts. Was the business significantly different from the type of business you did in 2019 or the same?
RS: One of the key metrics that really stuck out to me in this whole process was the number of new customers added on a monthly basis. That was a significant change for us. Even my sales guys were like, “where are all these people coming from”? I’ve never heard of any of these companies. We’ve been in this market for a long time, you’d think we’d know a significant amount of customers and the workers. We were amazed at the strong daily utilization. A lot of that equipment seemed like the contracts were a little bit more short term. Everyone was kind of in a panic and didn’t really know what the next day was going to bring.
RS: A lot of those things are good for a rental business because short-term rentals certainly drive up your ROI. It also creates a level of work for the individuals at the company. There’s some pluses or minuses. One thing that I can look back on in 2020, especially early on, was the value of the associations and the peer group. When things were really looking bad or there were so many questions out there, we heavily relied on the peer groups. And we also relied heavily on our associations. I paid my annual dues to the associations for 20-30 years at times, and never out of all those 20 years did I ever get as much value out of what they produced. We’re able to answer questions and that allows us to make some decisions on a very quick basis on how to run the company and how to interact with customers. As well, how to interact with each other as fellow employees putting protocols in while business was good in the middle part of the 2020. The amount of extra protocols that we had to add for the extra cleaning of equipment, offices, and the trucks. Interacting with customers, how we changed the way we did business, going to more of a tremendous amount of texting now with customers, tremendous amount of emails with customers. When ordering the equipment, paperless transactions, getting them in the east side, adding that from point a rental to the equation.
RS: There was so much that you had to quickly put a lot of those protocols in place, and while some of that stuff was coming as a normal, technological advance in the industry, it really moved that up from something that would have been implemented over the next three to five years. It was implemented in the next six months. It was a tremendous amount, but having to rely on the associations and the peer group was instrumental in getting us through this and probably a huge advantage for those independents that have those associations. Peer groups in place to be able to reach back and have a conference call weekly and discuss this stuff and figure out what is the best practice and how do we move forward. That was an incredible part of 2020. One thing that I really would not have thought of at the beginning and how valuable it really became.
DC: I remember hearing about your peer group, going to a weekly zoom call. I think it was noon on Fridays from the east coast perspective. I was like, “wow, how long can they maintain that”? I’m thinking maybe four weeks or so. I think you guys are still doing weekly zoom calls, aren’t you?
RS: We meet weekly and we have pretty good attendance at the meetings. Some calls were short, 10-15 minutes. Other calls went the whole hour. There were a lot of guys who had questions and it turned out we all had the same questions and we were able to discuss it and work it out together as a group. It was invaluable to have those guys as a resource.
DC: Getting back to your 2020 activity, what about sub rents and missed rentals? Any changes? There was a different type of year when it came to missed rentals and sub-rentals..
RS: We probably had more missed rents, but I think it was just demand based. I don’t recall occasionally over the past few years, you’d have a waiting list for maybe one type of equipment and we’d be scheduling it out days or weeks in advance. It seemed like all of a sudden we almost had waiting lists for multiple items at one time, which is something we’ve never had. We didn’t do much on the sub rent part of it. We did a little bit of it, probably more than we’ve ever had, but it wasn’t a real big factor then, but just tried to add some fleet and inventory where we could. That was another hard part because, while a lot of the manufacturers were still going, the manufacturers shut down or what worked from home. If it normally took you a couple of days to get parts for a piece of equipment, it was taking you four or five days a week. New equipment was even harder to get. I just added to the equation and to the amount of internal work that we had to do.
DC: So you get through, I remember a big point for me was, and might’ve been for everybody, but when you make it through summer and you’re hitting September and you’re like, “wow, am I really heading towards the fourth quarter”? And my head is still above water and we’re hanging in there but COVID is coming back. We are still doing well now, but all of a sudden it’s like, “all right, I need to do one more deep dive before I start my process of looking forward and how I’m going to move into the new year, what I’m going to look at from an asset purchase standpoint”. So how do you take a look at this and take a look at that. What are some of the resources that you like to look at that help you kind of just get a sense other than just talking to your peer group buddies and keeping on top of the association. What are other sources of input for yourselves?
RS: I probably participate in three to four monthly surveys that are either from a manufacturer investment firm or an association where they might come back and ask you about 10 to 15 questions each month. Questions such as, “How does business look this month”? “How’s it looking for next month”? “What do your rates look like”? “What does the station look like”? As well, they also ask a few questions where you have to write a few sentences down and tell them what you think and then they compile all this data and then send it back to everybody that participated, using it internally for what they need. It’s really valuable and it gives me about a 20,000 foot view of the whole country and of the whole industry.
RS: It reaffirms a lot of different things, while I might’ve been thinking about it, I really wasn’t sure. After reading some of these things, it really puts things into perspective and helps you quite a bit. Also probably once a month, I do an interview with an analyst and while he’s asking me the questions. His questions really lead me down a path where now I start thinking about that from my own business and how does that affect it? I get as much information out of them as they probably get out of me. It’s really valuable to be able to get something from outside our market perspective and understand what other people are seeing and looking at. It’s pretty valuable and helps you when you go to run your business.
DC: We get offers to get surveyed quite a bit and you got to get to give, right? So for anybody listening to this podcast, make sure that you answer those surveys, rental surveys, whether they be from the American Rental Association or from any other sources, because ultimately if we get the end report from it, it’s going to be beneficial to us. We can pass it around, we can share the information, get an understanding of confidence that is out in the marketplace. Get an understanding of optimism, whether there’s optimism or not and that can be helpful. There also might be some hard data in there as well. I know that one of the innovations that came out of 2020 for us was the creation of PureTech. PureTech then contracted with the barometer.
DC: We created a quarterly scorecard, and the idea was to be able to drill down whether it’s a 100, 200, to 300 people submitting data. What does my data look like in my region compared to others in the region? If we have 10 operators in ARA region 5 or 10 operators in Illinois, you can drill down, look at that from their perspective and say, “wow, look at the rate of change, they’re growing at a rate”. I noticed two years ago, the rate of change in Illinois was flat. When everybody else was flat in 2019, Illinois was actually at a 9% to 11% growth rate with their rate of change. I don’t really know why that was, but certainly it allowed me to compare one Chicago land operator to another. I’m not sure if you get value out of that rate of change, if you do use that Robert.
RS: My group that I belong to heavily relies on a composite book of financial data that we all produce on a yearly basis. It ranks us not only against everybody in the group, but it also ranks us for everybody in all the different peer groups. It gives you the ability to break it down into individual numbers and decide, “why am I in last place or in the bottom 25 percentile in a specific category, what am I doing that’s different”. It could be as simple as your stores in Manhattan and rent is 10 times higher than every place in the country. Or it could be that you’re not properly performing in that category. So it’s really great to be able to look at the composite book and be able to talk to the other 10 members in that book and ask the question.
RS: So what are you doing? That’s giving you a top 25 percentile here and why am I in the bottle and talk about it? Then we use the rate of change on a monthly basis. The part that I find interesting about the rate of change is when you’re in the day-to-day. Sometimes I walk in and I put my numbers in and my business is good. Things are going great. And then I’ll plug it into the rate of change and I’m on a downward trend. It helps you really forecast and make you think about it. While you might be riding the high here, the overall market is starting to turn the quarter on a downward trend, or you’ve turned the corner on an upward trend when things are looking bad. It kind of gives you a little bit of a perspective where you can see three months ahead or three months behind and understand it versus the battle you’re fighting at the minute.
DC: One of the epiphanys is when people started using the rate of change. They might measure that they grew 10% over the same time last year, then a month later they do the same calculation and they grew 7%, and continue to do it a month later. Then they see that they grew 3% and it’s like, “whoa, that’s a downward trend”. That’s ten to seven to three. So even though I’m still growing and that’s what you always remember is like, “geez, I’m growing over last year”. So there’s nothing wrong with that, except that your growth is decelerating. You realize, we need to stay on top and look at that. Just want to focus you on how your 2020 is going to end. Are you coming in strong in the fourth quarter? Is it possible that you’re going to end up above in 2019? What’s your projection on that?
RS: I think 2020 is going to end pretty strongly. We’ll probably be up a little bit. It appears to me that we’ve had phenomenal weather all summer and this fall here in the Chicago market. So that’s a huge bonus for us and certainly helps. I just looked at used equipment, prices are holding steady or improving which is really good. The utilization is still strong. I get the feeling that we’re going to end up fairly strong. This is an election year and you never know what could happen in an election year. In comparison to where we thought we were going to be on March 20th, when the governor put his shutdown in place, 2020 will end up being a complete home run compared to what we thought was going to happen in March. Very blessed from that aspect and just thankful that it all worked out the way it did so far.
DC: Going forward, any thoughts on your asset refresh slash asset growth? Are you going to do any expansion?
RS: A lot of those projects we started right away, a good amount of that money was set aside and those projects were approved in November of 2019. So in February, March of 2020, the money’s sitting there, nobody’s working. The governor says that, “we’re a vital business”. We have to stay open, construction workers went crazy and that didn’t happen in every state. We’re blessed that for one time Illinois did the right thing. We were pretty blessed in that, but the question is, “will that money be approved here in the next few weeks for projects to start next February and March”? I would think that there’s going to be a significant cutback, at least off the top for the meaning of work. The infrastructure bill is going to have to come in big, stimulus is going to have to help. I’m still bullish about the industry and the market. I feel that we’re probably still gonna get some growth in 2021 might not be as good as 2019 or 2020, but I think we’ll continue to grow.
DC: Where do you stand with your long-term vision on the industry and CE rentals? Where do you see it down the line?
RS: We picked up some market share in 20 through all the chaos. I want to keep that market share and continue to grow it. It’s an incredible industry. Most industries, you sell something and you have to take 60 or 70 cents of that dollar and put it back on the shelf behind you and wait till the next guy to walk in. In the rental industry, you don’t have to do that. You get to keep using the product over and over. It really is a very good business from that perspective. The people in the industry are phenomenal.
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